The incentive impact of the fixed wage – A real effort experiment

Kathrin Manthei and Alwine Mohnen

Zeitschrift fuer Personalforschung. German Journal of Research in Human Resource Management, 2013, vol. 27, issue 4, 331-353

Abstract: According to most simple agency models only the performance dependent part of the compensation drives the agent’s effort decision. However, we show that this is not necessarily the case for reference dependent and loss averse agents. Based on Pokorny (2008) we firstly analyze the impact of the fixed wage on work performance within a linear incentive contract when agents are loss averse. Secondly, we test the resulting hypotheses in an economic real effort experiment. Varying the fixed wage but keeping the piece rate constant over treatments, we find a non-monotonic slope of effort in the fixed payment with significantly higher effort levels for a very low fixed wage. Very high fixed payments also yield higher subject performance but to a minor and less robust extent.

Keywords: real effort experiment; incentives; fixed wage; loss aversion (search for similar items in EconPapers)
JEL-codes: M12 M21 M52 (search for similar items in EconPapers)
Date: 2013
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